It means that whatever they are doing, they're doing it very well. It's usually used with sports stars, singers or other entertainers who are performing very well. If your watching a quiz show on TV and you get a lot of the answers right, you could use this phrase. Or if your with your friends and all the jokes you tell make them laugh, you could say it. It's usually said in only a half-serious or jokey way. Similar phrases are: 'I'm in the zone.' 'I'm at the top of my game.' 'I'm on fire.'